The restrictions around the promotion of foreign funds to professional investors in the United Arab Emirates (UAE) have changed multiple times over the last few years. We have prepared this guide to outline the key features of the current regulatory framework and assist fund managers in navigating this complex regulatory landscape.
Onshore UAE[1]
To strengthen the local funds market, the Securities and Commodities Authority (SCA) issued Decision No. (02/RM) of 2023 and Decision No. 4/RM/2023, restricting the promotion of foreign funds onshore UAE. The promotion of foreign funds to retail investors is now prohibited. Furthermore, foreign funds are no longer exempt from the SCA's financial promotion regime when targeting “Professional Investors”.
How can Foreign Funds be Marketed to “Professional Investors” Onshore UAE?
Despite the tightening of the foreign fund marketing regime, it remains possible to market foreign funds to “Professional Investors” onshore UAE subject to certain conditions.
Registration with SCA
Foreign funds which are registered with SCA may be marketed on a private placement basis to “Professional Investors” onshore via an SCA-licensed “Promoter”. The minimum subscription amount is AED 500,000 unless the fund is incorporated outside the UAE in a free zone or financial free zone, in which case the minimum subscription amount is AED 1,000,000 (or, in each case, such higher limit stated in the fund’s offering documentation). Note that, for these purposes, the Cayman Islands are treated as an offshore financial free zone and therefore the minimum subscription amount is AED 1,000,000.
Reverse Solicitation Exemption
It remains possible to offer foreign funds on a “reverse solicitation” basis. However, such exemption is only available where the reverse solicitation is made on a cross-border basis – i.e. by a person located outside the UAE to persons located onshore UAE. For fund managers in the DIFC and ADGM, the SCA permits reliance on the reverse solicitation exemption but only for funds domiciled in those financial free zones.
It is important that the fund manager or promoter retains documentary evidence of any reverse solicitation.
Passporting Regime
Funds established in the DIFC or ADGM can be passported onshore to the UAE in accordance with the passporting regime. These passported funds may either have a direct investment strategy or act as feeder funds.
What is the Process for Registering a Foreign Fund with the SCA?
Registering a foreign fund with the SCA is a multi-step process:
The foreign fund has to appoint a legal representative and enter into a distribution agreement with an SCA-licensed Promoter.
The legal representative must register on the SCA’s online portal as the legal representative for the foreign fund.
The legal representative should then submit an application for the fund’s registration and pay the associated fees.
At SCA’s request, the SCA-licensed promoter provides an online undertaking to the onshore regulator.
The SCA will review the application. The SCA has indicated that this process typically takes five business days.
Once the application is approved, the foreign fund can be promoted on a private placement basis by an SCA-licensed promoter in compliance with the SCA Rulebook.
The fund’s registration must be renewed annually. The initial registration fee is AED 12,000, with an annual renewal fee of AED 5,000.
DIFC and ADGM
There are also exemptions in the DIFC and the ADGM for genuine reverse solicitations supported by documentary evidence. Additionally, subject to certain conditions, foreign funds can be promoted in the DIFC and ADGM by appointing a locally licensed distributor. Additional requirements may apply depending on the type of fund.
Conclusion
In summary, the UAE offers attractive opportunities for fund managers seeking to raise capital from professional investors. However, navigating its evolving regulatory landscape can be challenging. Nevertheless, there remains effective ways to offer foreign funds to UAE professional investors, including by way private placements through SCA-licensed promoters.
This article was written in collaboration between Kingsbury & Partners and Support Legal. For more information and personalised guidance and support, please contact:
Ben Rockell, Managing Partner at Kingsbury & Partners Email: ben.rockell@kingsburyandpartners.ae
Eugénie Levy, Principal at Support Legal Email: eugenie.levy@supportlegal.com
This material is provided for general information only. It should not be relied upon for the provision of or as a substitute for legal or other professional advice.
____________
[1] Onshore UAE refers to the United Arab Emirates, excluding the ADGM (Abu Dhabi Global Market) and DIFC (Dubai International Financial Centre) financial free zones.
Comentários